9-10 Resources

Summary Options are exciting investment “vehicles,” but to be used profitably, you need to understand what they mean and what they can or cannot do for you. You have now scratched the surface of the option world. Before you make a real-world decision, for better or worse, use the wonderful benefit offered by Howthemarketworks.com, and Read More…

9-09 Put Versus Call Interest

Put and call interest does not involve the banking definition of interest, but the market excitement – or lack thereof – regarding puts or calls for a security. Before you start thinking we’ve all lost our analytical minds, try to understand that market prices for stocks and put/ call options The right, but not the Read More…

9-08 Option Pricing – Black-Scholes Model

 Any discussion of options and option prices would be incomplete without a mention of the Black-Scholes The most generally accepted option pricing model. option pricing model. Academics Fischer Black and Myron Scholes, in a paper they authored in 1973, stated their theory that an option was implicit to the pricing of any traded security. Referencing Read More…

9-07 Implied Volatility

Often used in relation to options, implied volatility is a calculation that compares the current market price of a stock with the theoretical value of the market price in the future, all to predict the true value of an option. This may sound like a risky probability equation – and it is – yet it’s Read More…

9-06 Volatility

Volatility is a concept that involves all stocks and other securities. For good reasons, high volatility is most often viewed as a negative in the investment world since rapid movements in market prices inherently involve both wins and losses. In investment language, volatility implies two scary conditions for you: uncertainty and risk. For example, if Read More…

9-05 Writing Covered/Naked Calls

We noted earlier that 35% of option buyers lose money and that 65% of option sellers make money. Option trading comes down to the turtle and the hare story. Option buyers are the rabbits that are generally looking for a quick move in stock prices, and the option sellers/writers are the turtles that are looking Read More…

9-04 Making Your First Option Trade

Now that you have a high level understanding of what options are, let’s look at option trading in a little more detail. When you get a quote on a stock you can also call up its option chain: First of all, you must realize that not all stocks have options. Only the most popular stocks Read More…

9-03 Put Options

Whereas a call option gives the holder the right to buy the stock at a certain price, a put option gives the holder the right to sell the stock at a certain price. A trader that buys a put option The right, but not the obligation, to sell a stock at a certain price before Read More…

9-02 Call Options

A call optionThe right, but not the obligation, to buy a stock at a certain price before the expiration date. is the option (remember, not an obligation) to buy 100 shares of a stock for an agreed price (the strike price The price at which the option contract can be executed.) by an agreed date Read More…

9-01 What Are Options?

Generally speaking, options are used in many areas of business and investment. Employees of larger companies frequently get stock options as an incentive to stay with the company for a long time and help the company increase in value. A lot of real estate transactions involve the option to purchase additional neighboring acreage at a certain Read More…